India Development Path

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Since 1991, a series of reforms have taken place, also due to the debt crisis and the pressure of the IMF for the ‘stabilization’ programme. The control over the foreign exchange control was lifted, consumer good remained under licensing (till 2002), but the rest could be imported without restriction (though this has been done gradually)[7], and ease restriction on FDI investment and so on. Moreover, to push exports, the bulk of document needed for permission were reduced, and in 2005 Special Economic Zone (SEZ)[8] was introduced with the aim to create employment and development of infrastructure.

The graph below shows the dependence between the positive growth of the economy with the growth in export. Indeed, the 80s and 90s coincided with the export-oriented phase of development.

[pic 1]

Source: Word Bank, 2016. Word Development Indicators Online

From the data below, can be seen that the outward-oriented strategy has contributed to the economic improvement of India. As shown below, the data suggest that from 2008 GDP as increased steadily and never turned negative. More strikingly is the annual per capita growth rate that from 1995 to 2013 averaged 5.20 percent. Although what the number shows, this period fuelled income concentration and inequalities. Indeed, 51.5 of the Indian households experienced an income growth of only 0.5 percent yearly (Cypher, 2014). Moreover, public investment, but mostly private, surged to 38 per cent in the period 2005-6/2009-10.

Years

Annual GDP Growth Rate at Market Prices[9]

Gross (Domestic) Capital Formation % of GDP

GDP per capita Growth Rate

1979-80

-5.24

20.96

-7.38

Structural break

1980-1/1984-5

5.47

20.69

1.29

1985-6/1989-90

5.91

23.46

3.63

1990-91/1994-5

4.70

23.22

2.62

1995-6/1999-2000

6.84

24.59

4.86

2000-1/2004-5

5.65

26.65

3.88

2005-6/2009-10

7.91

38.30

6.30

2010-13

7.29

38.29

5.89

Source: World Bank, World Development Indicator.

Moving to the way the structure of the Indian economy has changed, the WB data shows a constant shift toward the service sector. Indeed, service-sector-led growth was pursued consistently by the state policy and is believed to be the engine of the Indian growth (Balakrishnan and Parameswaran, 2006). As today, the sector accounts for 50 per cent of the GDP but employ only 28 per cent of the population. This number is indeed worrying if we look at other sectors share and trends. The primary sector has been declining over the years and passed from been the main contributor to the GDP to a marginal position in the economy. Even though the sector benefitted from the Green Revolution of the 60s, that increased the irrigated land (therefore the TFP), due to the unaffordability of electricity to pumps water, the main advantage went to larger farmers. Moreover, because of the small size of the plots (1/4 of a hectare), mechanisation or irrigation are almost impossible, as such economies of scale (Griffin et al. 2004).[10] To worsen the situation the government has been undercutting its spending in this sector since 1980, from 7.2 percent to 5 per cent (FAO, 2012).

Noteworthy, the decline as a share of the GDP was not associated with the reallocation of the labour force in excess. Today, this sector account for 17 percent of the GDP, but has a share in the workforce of 50 percent, which is indeed worrying.

What also emerge, is an increase in the industry and manufacture sectors. However, they absorb only 21.5 share of the workforce[11].

[pic 2]

YEARS

AGR

IND

MANUF/IND

SERV

1960-1

42.56

6.79

14.33

38.29

1970-1

41.95

0.74

13.70

37.57

1980-1

35.39

5.24

16.18

40.32

1990-1

29.02

7.33

16.16

44.48

2000-1

23.02

6.3

15.31

50.98

2010-11

18.88